In 1999, Eric Martin and his sister, Lynne, started a business offering narrated historical tours along the Youghiogheny River. They used $50,000 in loans from The Progress Fund (TPF) to buy rafts and a truck, and a bank made a real estate loan for a building used as a storage area.
David Kahley, president and CEO of TPF, a CDFI based in southwestern Pennsylvania, said: “TPF fills gaps in financing packages for tourism-related businesses. Tourism is Pennsylvania’s second largest industry, but one difficulty in lending for tourism is that many are seasonal businesses. The collateral offered is often a problem for banks. In the extreme, we’ve had lions, bears, llamas, and carriages with horses as collateral.
“About half of our loans are made in concert with banks. TPF is typically in first position on loans for business assets, whereas a bank is typically in first position on real estate loans. We bring in our own loan funds and important state money through the First Industries Fund program and sometimes USDA Rural Development’s programs.”
TPF, based in Greensburg, Pa., lends to tourism-related businesses in 39 rural counties in southwestern and northern Pennsylvania. It also covers the state of West Virginia and Appalachian Ohio. Founded in 1997 by Kahley and Karen L. Post, TPF’s secretary, treasurer, and CFO, the CDFI focuses on tourism that involves one or more elements of an area’s history, culture, and natural resources and recreation.
Kahley explained: “We’re a nonprofit organization with an economic development mission. We want to harness the power of the tourism sector of the economy to accomplish our goals, which is to help capable entrepreneurs that have well-thought-out plans but have trouble accessing loans.”
A wide range of businesses have borrowed from TPF, including bed and breakfasts, lodges, and cabins; family-style and upscale restaurants and banquet facilities; a golf club; and a printing company, manufacturer, camping supplies store, smokehouse, financial advisor, blacksmith, grist mill, arts center, medical building, natural health products store, clothier, and candy-making business.
Some borrowers need coaching in putting together a financing package and in marketing their business, Kahley noted. TPF prepares onepage color project profiles that tell the borrower’s story and TPF’s role. The profiles are posted on the TPF website at www.progressfund.org.
About 75 percent of TPF’s loans are to start-ups or new ventures of existing businesses. The average size of a loan is about $93,000 and the average term is 11 years, TPF said. Virtually all of the borrowers are full-time businesses, and about 50 TPF loans have involved the rehabilitation of historically significant buildings.
Many of TPF’s businesses are repeat borrowers. In 2001, Eric Martin and his wife, Kasia, used $150,000 in TPF loans to open a restaurant-pub near Ohiopyle, which draws tourists for white-water rafting and cycling. In 2005, they bought a lodge with a TPF $200,000 loan when they were unable to get timely bank financing.
In addition to making loans, TPF tries to build tourism markets and destinations. Fallingwater and Kentuck Knob, two houses designed by the late architect Frank Lloyd Wright, were already located in Fayette County, so TPF made several loans when Kentuck Knob, a private residence, was sold and turned into a house museum. The museum now has over 31,000 visitors annually. TPF also made a loan for a Wrightdesigned house in Chicago to be moved to the Laurel Highlands region.
Eric and Kasia Martin received loans from The Progress Fund to acquire and operate a lodge.
TPF is also conducting an economic development initiative along the Great Allegheny Passage, a 132-mile stretch of trails built for cyclists on railroad tracks in southwestern Pennsylvania. It is helping six towns in a 25-mile stretch from West Newton to Meyersdale to improve marketing and signage and assess the state of existing businesses. Before it started the initiative, called the Trail Town Program, TPF raised state and foundation funds for five years of TPF’s costs of operating the program and $1.6 million in loan funds for new business development.
TPF’s staff consists of seven full-time employees, including two lenders, as well as two part-time employees. Six of TPF’s seven-member loan committee currently work for, or are retired from, financial institutions, the SBA, and economic development nonprofits. Its board includes a financial institution representative and a retired banking executive.
TPF has made 235 loans totaling $21.2 million to 155 different borrowers since its inception. It made 33 loans totaling $3,895,500 in calendar/ fiscal year 2005, 22 loans totaling $2,603,500 in 2006, and 32 loans totaling $3,143,800 in 2007. TPF said that as of the end of December 2007 its delinquency rate (90 days or more past due) was 3.18 percent on outstanding loans, while its cumulative default rate was 2.45 percent of dollars lent. In addition to its own capital sources, in 2005 The Progress Fund began to underwrite loans for Pennsylvania’s First Industries Tourism Program, and it made five such loans totaling $550,317 in 2006 and 15 loans totaling $2,032,809 in 2007.
Recently, a TPF for-profit subsidiary, TPF Loan Corporation, received SBA authorization to make 7(a) loans and is raising capital for the loans, which will be made and serviced by TPF staff. Under the 7(a) program, loans of $100,000 or less carry an 85 percent SBA guarantee, and loans of $150,000 to $2 million carry a 75 percent guarantee.
In a move to extend its impact in the rural areas it serves, TPF has started a foundation-funded sustainable agricultural initiative. As part of this initiative, they made a loan that enabled a couple in Bedford, Pa., to buy a neighboring farm and expand their sheep farm and vacation home business. TPF also made a loan to a farm in Somerset, Pa., for the construction of a facility to store, pack, and ship products of farms in the region. The farm, which is owned by two sisters and their husbands, now supplies a dozen grocery stores and a regional restaurant chain.
A report published in August 2006 by Pennsylvania State University found that the impact of TPF clients on the regional economy was business revenues of $76.46 million and 1,203 jobs.* The report noted that TPF finances many projects that businesses would otherwise have financed personally, often with credit cards. The authors observed: “We see the heritage tourism (field) as a growing market, especially when it is based on models of regional cooperation. Given the richness of the region’s history, this area has great potential... Ecotourism that is closely linked to heritage tourism development is an especially promising area of future growth.”
Asked about lending and investment opportunities in TPF, Kahley said banks can obtain additional financing for their customers in a financing package with TPF, lend funds that TPF will then re-lend to viable small businesses, and help capitalize its new SBA 7(a) loan fund.